Dealing With Cryptocurrency in a Divorce

Dealing With Cryptocurrency in a Divorce

In a divorce, couples need to think about their assets. These items will need to be split equitably, as Florida is an equitable division. What this means is that assets are divided fairly based on each person’s contributions to the marriage. This could mean a 50/50 split or perhaps 60/40 or 70/30. 

When people think of assets, they tend to think of all the tangible ones, like cash, houses, cars, and other physical assets. However, intangible items such as financial accounts and stocks are also subject to split. So is cryptocurrency.

It is important to mention cryptocurrency, even though most Americans do not own any. However, 20 million Americans do own some in varying amounts. Some people own just small amounts. For some people, it has become a significant investment worth millions of dollars. You can imagine how valuable it would be in a divorce and why investors would go to great lengths to hide it from their spouses. 

So what exactly is cryptocurrency? It is a virtual or digital currency designed to work through a computer network. These digital tokens, or coins, are not controlled by a bank, government, or any other central authority. In fact, the “crypto” in cryptocurrency refers to the cryptography that allows for these currencies to be created and processed. 

While Bitcoin is the most common type of cryptocurrency, there are many others such as Ethereum, Litecoin, Cardano, Stellar, and Polkadot. Since these cryptocurrencies are not available in physical form, tracking these down in a divorce can be complicated.

Cryptocurrency has probably been an issue in divorces for many years. However, more and more divorce lawyers have become aware of Bitcoin and other forms of cryptocurrency in recent years. They are also aware of how these forms of currency can be easily hidden. 

Hiding Assets

Because cryptocurrency is not tangible, it is easy to hide and forget about. This is a concern in a divorce, especially since a small amount of Bitcoin in particular can be easily worth six or seven figures. When someone is not aware of their spouse’s investment, it can be overlooked, especially if the spouse has never talked about it. Many people are still unaware that it even exists.

In a divorce, each spouse is legally required to disclose all of their separate and marital assets and liabilities so they can negotiate a marital settlement agreement. Even though hiding assets is illegal, some people try to anyway. Because cryptocurrency is hard to trace, many people invest in it. 

However there are ways for divorce lawyers to discover cryptocurrency assets. Bitcoin and Ethereum are the easiest to uncover. While other cryptocurrencies are more anonymous, they are often much less valuable.

In any case, a forensic expert can help look for signs of cryptocurrency investments, such as  tickers, login credentials, or keys for digital wallets. There may also be evidence of cryptocurrency purchases, such as bank statements and credit card statements. There may be emails or other documentation as well. It is also possible that the cryptocurrency may have been documented on loan applications or tax returns.

U.S.-based accounts are typically easier to track than foreign exchanges. That is because exchanges in the United States can be subpoenaed directly. Foreign exchanges, on the other hand, are not usually concerned about requests for information from a family court in the United States.

However, keep in mind that it can be costly to hire forensic experts. Therefore, the spouse will want to be sure about the outcome. It will depend on how much cryptocurrency is at stake. Are there hundreds of dollars or millions of dollars? Exposing the hidden cryptocurrency can be significant for both parties. 

How is Cryptocurrency Treated?

In a divorce, cryptocurrency is treated just like any other asset. It can be considered separate property or marital property. Because Florida is an equitable division state, cryptocurrency is subject to equitable division. Even if the cryptocurrency was purchased before marriage, it could be considered a marital asset if the value grew during the marriage. This is especially true if both spouses were involved in the investment.

Cryptocurrency is then treated like a retirement fund or traditional investment account. It can be handled in different ways during asset division. For example, the cryptocurrency could be liquidated, with the cash value divided. It is also possible that one spouse may forgo a share in cryptocurrency holdings in exchange for other marital property.

However, like stocks, the value can change rapidly. These volatile investments can bring about some degree of complexity in a divorce. Therefore, it might be a good idea to reassess the value of the cryptocurrency before the divorce is final. A sudden crash or spike in the value could lead to unfair outcomes.

Like other investment accounts, cryptocurrencies may come with tax obligations. Issues such as unpaid taxes may be brought up in a divorce.

Seek Legal Help

When it comes to divorce, you need to be upfront with all your assets. While not many people want to have to split up their money once their marriage ends, the law requires you to disclose all your assets—even cryptocurrency.

Do you think your spouse may be hiding assets from you? If so, seek legal help from Broward County divorce attorney Scott J. Stadler. He can ensure that all assets are accounted for so they can be split fairly. To schedule a consultation with our office, fill out the online form or call (954) 398-5712.